by Calculated Risk on 12/09/2009 09:09:00 PM

Mark Whitehouse writes about the advantages of renting in the WSJ: American Dream 2: Default, Then Rent (ht Pat)

Whitehouse describes one former homeowner with a monthly income of $8,300. He was paying $4,800 a month on his home and he was basically working to pay his mortgage. He was really a "debt owner" since the home was worth far less than the amount owed. He now rents a similar home for $2,200 a month and is enjoying life:

[H]e now has the wherewithal to do things he couldn't when he was stretching to pay the mortgage. He recently went to concerts by Rob Thomas and Mat Kearney. He also kept his black BMW 6 Series coupe, which has payments of about $700 a month.

"I don't know if I'll buy another house again, because it's such a huge headache," he says.

This is one of the tragedies of the housing bubble - it encouraged people to become homeowners before they were really ready and also encouraged them to buy too much home (58% DTI for the mortgage is definitely "house poor"). Many of these people will not buy again for years, if ever.

The article also mentions the "stealth stimulus" from all the delinquencies:

For the 4.8 million U.S. households that ... haven't paid their mortgages in at least three months, the added cash flow could amount to about $5 billion a month ... "It's a stealth stimulus," says Christopher Thornberg of Beacon Economics ...

by Calculated Risk on 12/09/2009 07:04:00 PM

From KTLA: Home of Subprime Lender Targeted by Violent Robbers (ht WestSac_grrl)

Three suspects are under arrest after a violent home invasion robbery in a gated Newport Beach community ... The home is owned by Daniel Sadek, a prominent former subprime lender.
...
Police did not immediately know whether the men who invaded Sadek's home were collecting on a debt or were there to rob him. They were taking cash and jewelry ...

Sadek made and lost a fortune in the subprime mortgage business. Quick Loan Funding, which he founded in 2002, wrote about $4 billion in subprime mortgages before it collapsed in 2007

The house was the scene of a fire two weeks ago.

There is no evidence of a connection to the collapse of Quick Loan.

by Calculated Risk on 12/09/2009 03:53:00 PM

From Maria Bartiromo at CNBC: Citi Plans to Repay TARP Via Stock Offering: Sources

Citigroup plans to pay back some of the $45 billion in TARP money it received last year by raising capital through a stock offering, CNBC has learned.

An announcement could come as early as Thursday.

Are the regulators sure they have enough capital?

by Calculated Risk on 12/09/2009 03:02:00 PM

With the Ten Year Treasury yield at 3.42%, I was wondering what that would mean for mortgage rates.

Click on graph for larger image.

This graph is from Political Calculations: Predicting Mortgage Rates and Treasury Yields (based on one of my posts).

Using their calculator and a Ten Year Yield of 3.42%, we would expect the 30 year Freddie Mac fixed mortgage rate to be around 5.38%. Of course it is lower than expected - as it has been from most of the year - and some of the difference from the expected rate is probably due to the Fed's MBS purchases (also prepayment speed is a factor - and also just randomness).

The following table shows the difference between the expected and actual rate for the last 6 months. This suggests that mortgage rates will rise about 30 to 50 bps relative to the Ten Year Treasury yield when the Fed stops buying MBS.

	Ten Year Treasury Yield	Expected Mortgage Rate	Freddie Mac Mortgage Rate	Spread
May	3.28%	5.28%	4.86%	0.42%
June	3.71%	5.59%	5.42%	0.17%
July	3.54%	5.46%	5.22%	0.24%
Aug	3.58%	5.49%	5.19%	0.30%
Sep	3.39%	5.36%	5.06%	0.30%
Oct	3.37%	5.34%	4.95%	0.39%
Nov	3.40%	5.36%	4.88%	0.48%
Average				0.33%

by Calculated Risk on 12/09/2009 12:40:00 PM

“Has there been one financial leader to say this is really excessive? Wake up, gentlemen. Your response, I can only say, has been inadequate.”
Paul Volcker, former Fed Chairman, Dec 8, 2009

From The Times: ‘Wake up, gentlemen’, world’s top bankers warned by former Fed chairman Volcker

“I wish someone would give me one shred of neutral evidence that financial innovation has led to economic growth — one shred of evidence,” said Mr Volcker ... He said that financial services in the United States had increased its share of value added from 2 per cent to 6.5 per cent, but he asked: “Is that a reflection of your financial innovation, or just a reflection of what you’re paid?”

And from the Telegraph: Ex-Fed chief Paul Volcker's 'telling' words on derivatives industry

"You can innovate as much as you like, but do it within a structure that doesn't put the whole economy at risk."
...
Mr Volcker argued that banks did have a vital role to play as holders of deposits and providers of credit. This importance meant it was correct that they should be "regulated on one side and protected on the other". He said riskier financial activities should be limited to hedge funds to whom society could say: "If you fail, fail. I'm not going to help you. Your stock is gone, creditors are at risk, but no one else is affected."